Business Valuation in Egypt: Three Approaches and When Law Requires It
The market, income and cost approaches in EAS 45 and the FRA standards, when the Companies Law requires an in-kind contribution to be valued, and fair value in disposal tax.
By Audit & Assurance Department · 15 October 2026 · 9 min read
Executive summary
- Egyptian Accounting Standard No. (45) "Fair Value Measurement" sets out three approaches: market, cost and income (paragraph 62).
- In-kind contributions to the capital of a joint stock company or a partnership limited by shares, on formation or on an increase, are valued by a committee of the General Authority for Investment and Free Zones (GAFI), which files its report no more than sixty days after the papers are referred to it (Article 25 of Law 159 of 1981).
- The valuation becomes final only once approved by the subscribers or partners by a numerical majority holding two-thirds of the cash shares or quotas, after excluding those owned by the contributors. If it falls short of the value at which the contribution was made by more than one-fifth, the capital must be reduced, although the contributor may pay the difference in cash or withdraw.
- The Egyptian Standards for Financial Valuation of Enterprises (FRA Board Decision 1 of 2017, as amended to 9 July 2025) bind securities financial advisory companies licensed by the Financial Regulatory Authority (FRA), and the period for which a valuation may be used "does not exceed six months in all cases".
- Where unlisted securities or quotas are disposed of at fair value, an amount equal to the Central Bank's credit and discount rate for each year of holding is added to the acquisition cost, provided they are not disposed of before three years have passed (Article 46 bis 4, as replaced by Law 151 of 2026).
Three approaches in Egyptian Accounting Standard No. (45)
The standard was issued by Minister of Investment Decree 110 of 2015, and none of the decrees amending the standards since then, up to Prime Minister's Decree 3527 of 2024, has amended it. It applies where other Egyptian Accounting Standards require or permit fair value (paragraph 8), which it defines as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date" (paragraph 9; quotations from Arabic texts in this note are our translation). Paragraph 62 provides:
"Three approaches are widely used: the market approach, the cost approach and the income approach ... The entity shall use valuation techniques consistent with one or more of those approaches to measure fair value."
In some cases a single technique is appropriate. Where several are used, fair value is the point within the range of results "that is considered most representative of fair value in the circumstances" (paragraph 63).
| Approach | EAS 45 | What the FRA standards add |
|---|---|---|
| Market | Prices from market transactions in identical or comparable assets or liabilities, including market multiples (application guidance, paragraphs 5 and 6) | Profitability multiples cannot be used where the enterprise has made actual losses |
| Cost (assets) | The amount currently required to replace the service capacity of an asset (application guidance, paragraph 8) | Must be included when valuing financial entities with most assets at fair value, natural-resource entities, and newly formed or early-stage companies |
| Income | Converting future amounts to a single current, discounted amount (application guidance, paragraph 10) | Discounting cash dividends suits cases including a minority holding; discounting free cash flow to owners suits cases including a controlling holding |
The differences between the Egyptian standards and IFRS are covered in Egyptian Accounting Standards vs IFRS.
When the law requires a valuation, and who performs it
Article 25 of the Companies Law, its first paragraph as replaced by Law 4 of 2018, provides that where tangible or intangible in-kind contributions form part of the capital of a joint stock company or a partnership limited by shares, on formation or on an increase:
"the founders or the board of directors, as the case may be, must ask the Authority to verify whether these contributions have been correctly valued."
The Authority here is GAFI (Article 5 of the issuing articles). The valuation is carried out by a committee formed at GAFI, chaired by a counsellor from a judicial body and with no more than four experts, and bound by the Egyptian real estate valuation standards and the financial valuation standards for enterprises, as the case may be (Article 25). It is preceded by a preliminary valuation by the founders or the board, who may use experts from among accountants or others, and the parties concerned pay the amount GAFI sets for the valuation work and the committee's fees (Article 26 of the Executive Regulations). How each company form works is covered in Company forms in Egypt.
| Case | Who values | Approval or acceptance |
|---|---|---|
| In-kind contribution to a joint stock company or partnership limited by shares (Article 25; Regulations, Articles 26 to 29) | The GAFI committee, after a preliminary valuation | The constituent assembly or extraordinary general assembly, by a majority holding two-thirds of the cash shares or quotas, contributors excluded |
| In-kind contribution to a limited liability company (Article 29; Regulations, Articles 69 and 279) | Experts from professions regulated by law | The partners sign the report; on an increase, the partners approve by the majority required to amend the company contract |
| A valuation required by the Capital Market Law, its Executive Regulations or the listing and delisting rules | A company licensed by the FRA to act as independent financial adviser | The FRA does not accept reports that do not state in their heading that they were prepared under the standards |
In a limited liability company the contributor is "liable towards third parties for the value assigned to it in the company contract". If that valuation proves excessive, the contributor must pay the difference in cash, and the other partners are jointly liable for it unless they prove they did not know (Article 29).
What the FRA standards require of the valuer
The standards state that "in general, using a single valuation approach is not sufficient to reach the value of the enterprise", with fair value as a mid-point within the range of values. Among the most important bases for the valuer are the financial statements, the auditors' reports and the board of directors' reports; on auditors, see Egypt's statutory audit requirement. Where management provides the forecasts and their assumptions, "in all cases it remains the valuer's responsibility to verify the reasonableness and appropriateness of those assumptions". The valuer also declares in the report that the fee due does not depend on the value reached or on the outcome of its use.
The income approach in practice: forecasts, discount rate and terminal value
In some cases the valuer may need to restate costs contracted with related parties to market prices, and to exclude non-recurring revenue and expenses. Any material departure from historical growth levels should be explained, and where the valuer relies on variables that are hard to verify and for which there is no alternative evidence, the valuer must disclose this clearly and prominently in the report and add an extra discount factor. The discount rate must match the type of cash flow: the required return on equity for free cash flow to owners, and the weighted average cost of capital for free cash flow to the firm, with debt deducted to arrive at the value of equity.
For the terminal value, "the sustainable growth rate of the enterprise must not exceed the level of national output growth, according to the latest reliable sources of information such as the reports issued by the Ministry of Planning". Illustrative example with hypothetical figures that are not Egyptian market data: assuming free cash flow of EGP 10 million in the year after the forecast period, a discount rate of 20% and sustainable growth of 5%, the constant-growth terminal value is 10 ÷ (20% − 5%) = about EGP 66.7 million before discounting to the valuation date. At 7% growth, with all other assumptions unchanged, it becomes about EGP 76.9 million, an increase of about 15%.
Tax: the tax on disposals and its base
Law 151 of 2026 (Official Gazette, issue 30 bis (A), 28 July 2026) replaced Articles 46 bis 3 and 46 bis 4 of the Income Tax Law. The tax applies to capital gains from disposals of quotas in companies or of securities not listed on the Egyptian Exchange, whether the gains arise in Egypt or abroad, and is computed on the difference between the sale or exchange price, or any other form of disposal, and the acquisition cost, after deducting brokerage commission. Article 46 bis 4 adds:
"Where the sale, exchange or disposal price is at fair value, an amount equal to the credit and discount rate announced by the Central Bank for each year of holding is added to the acquisition cost, provided these securities or quotas are not disposed of before three years have passed; the acquisition cost is calculated on a weighted average basis, as set out in the Executive Regulations of this law."
The same law excludes from the real estate disposal tax (Article 42) "contributing real estate as an in-kind share in the capital of joint stock companies, provided the corresponding shares are not disposed of for five years". The other amendments are covered in Income tax amendments under Law 151 of 2026, and the real estate disposal tax rate in Egypt's property disposal tax after Law 151. In our view, a valuation report prepared under the standards and dated close to the disposal supports the position that the price is at fair value, but it does not replace what the Executive Regulations set out, nor the three-year condition.
What this requires
- For a joint stock company or partnership limited by shares, the founders file the verification request with GAFI well before the closing date for subscription to cash shares, and the board at a suitable time, attaching the preliminary valuation report (Regulations, Article 26).
- The effect of the one-fifth rule should be worked out in advance: paying the difference in cash, withdrawing, or reducing capital.
- In a limited liability company, the experts' report describes the contribution, any guarantees attached to it or restrictions or third-party rights over it, and the basis of its value, and the partners sign it (Regulations, Article 69).
- In capital market cases, an independent financial adviser licensed by the FRA is engaged, and the report should not be used once its validity period has expired.
- The support for every assumption given to the valuer should be documented, including the sustainable growth rate.
- Records of acquisition costs and dates should be kept, for the weighted average and the three-year period.
For a review or agreed-upon procedures on the figures behind a valuation, see Special-purpose audits and reviews in Egypt; for the work that precedes a transaction, see Financial due diligence in Egypt.
The firm's Audit & Assurance Department audits the financial statements on which a valuation rests, tests the cash-flow and discount-rate assumptions in valuation models, and helps companies prepare the preliminary valuation of in-kind contributions before it goes to the GAFI committee.
Nehal Saied, Partner
Chartered Accountant, Ministry of Finance, Egypt
Member, Egyptian Tax Society
Member, Egyptian Society for Public Finance and Taxation
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